Lowtax.net General Forum

Notice: The Lowtax Forum is no longer being maintained. Instead, we have designed a new platform called “Questions” to take the place of the forum.
We encourage you to use this new platform and to make this transition smoother for our users, existing content has already been migrated. This content has been credited where applicable.

The Lowtax Forum will be phased out over the coming months and we will no longer offer technical assistance and only limited moderation.
We hope that our new Questions platform will provide a better user experience. Go to Lowtax Questions now.

Australian company/trust buying properties in USA

Anonymous

Posted on: 18/10/2011
Posted at: 06:39:55

Hi, We are a group of Australian citizen and have formed a group (trust) to allow us to buy properties in the USA without borrowing any money. We would like some information regarding property investments in the USA. So far I have been advised that I need a company in the USA. My questions are:
1. What is the benefit of opening up a company in Delaware (It seems that Delaware is somehow a preferred state)
2. What are the tax laws when it comes to rental returns and capital gains tax.
3. Do I need to pay double tax in the USA; Once for the company and then individual share holders of the company.
4. Can an LLC in say Delaware be owned by a foreign company (in this case Australia).

Several things to look at.
You will need to set up a regular corp. for the company.
The corp will hold LLC's which will own the rental properties. One LLC for each property, LLC is a pass through for tax.
Best two locations for the corp now are either Wyoming or Delaware. Deferences are a personal choice each has an advantage. As a US resident I would use Wyoming as a non resident I would use Delaware.
The LLC's can be formed in the same state as the corp. but will have to be all so registered DBA in the state were the property is located.
You will be subjected to state property tax, and income tax for the location of the properties, as well as income tax to the IRS on the corp income from the LLC.
The hard part is which states and type of property you want and choosing a good management company and accountant to take care of those things.

Single owner LLC's can have their Veil-Pierced here in the US. Putting another layer between the Trust and LLC would be helpful, all so a LLC for each property is a must. Rental property just has to much liability and regulation in the US, a lot of law suits.
States, Counties and Cities are looking for more review, Illinois is way at the top.
Cash is king, so the deals are there, so is the prophet.
You said you had a good management company. Have them recommend a couple different tax accountants and attorney's that understand that a foreign trust will be the owner. Interview, due diligence. That way formation can be set up right. A little more cost up front by not using a boiler plate firm but cheap insurance in the long rung for the amount of money you will be investing. Good luck, I like the plan.

Disclaimer: I am neither an attorney nor a tax professional.
Delaware is unique in that its Court of Chancery handles only business matters. Other states have courts that handle a mix of everything. Additionally, Delaware has a reputation for being management-friendly.
The short answer is that, yes, you will need to pay "double tax" if you use a C-corporation. Foreigners cannot be owners in S-corporations, so any corporation for this project would inherently be a C-corp.
Veil piercing is a complex subject. Different states have different criteria for what could result in veil piercing. I recommend the works of Bromberg and Ribstein (full disclosure: I have no connection to them) for more information about LLC legalities.
I've heard of LLCs being jointly owned by an entity and a grantor trust [settled by same entity]... thus being multi-owner from a legal standpoint, but single-owner from a tax perspective. Again, I'd be out of my league if I tried to give specific advice.
Keep in mind that certain states -- Delaware being a prime example -- recognize LLCs largely as "creatures of contract", affording members both the privilege and the responsibility of playing legislator when drafting the entity's internal workings. Read statutes. Read academic papers. Then seek competent accounting and legal counsel.

Important Notice: Wolters Kluwer TAA Limited has taken reasonable care in sourcing and presenting the information contained on this site, but accepts no responsibility for any financial or other loss or damage that may result from its use. In particular, users of the site are advised to take appropriate professional advice before committing themselves to involvement in offshore jurisdictions, offshore trusts or offshore investments. All rights reserved.

To combat spammers, we must verify that your message is genuine. Please copy the two words below, including the space.